Rackspace Staying in San Antonio, Names New CEO

Rackers collaborate to provide Fanatical Support to their customers. Photo courtesy of Rackspace.

Updated October 7, 2016

The rumors about Rackspace are history. The world’s number one managed cloud company is staying in San Antonio, staying independent, and it has a new CEO.

Graham Weston, Rackspace co-founder and chairman, announced he is stepping down as CEO, a position he assumed on an interim basis in February following the retirement of longtime CEO Lanham Napier. He remains non-executive chairman and the company’s largest individual shareholder.

Courtesy / Taylor Rhodes

Rackspace CEO & President Taylor Rhodes

The Rackspace board named company president Taylor Rhodes as the new chief executive officer and elected him to the board. Rhodes, a seven-year Rackspace veteran who once headed up the company’s international business operations, was the subject of an in-depth interview published over two days in March on the Rivard Report shortly after he was promoted to president.

Click here to read the company’s complete announcement naming Rhodes as the new CEO.

Rackspace made its major announcement late Tuesday, bringing to a close months of speculation about the company’s future. That speculation began in mid-May when the company disclosed in a Securities and Exchange filing that it “had been approached by multiple parties who expressed interest in exploring a strategic relationship, ranging from partnership to acquisition. The board retained Morgan Stanley and Wilson Sonsini Goodrich & Rosati to facilitate a comprehensive review to maximize value for shareholders, customers, and employees.”

Over the ensuing months, different market watchers and national media speculated that Rackspace was being acquired, was going private, was taking on partners, or was unwanted by would-be suitors. The company’s stock rose and fell in response to each round of rumors. A lot of that speculation was echoed in the Express-News and San Antonio Business Journal, and company officials found themselves assuring local civic and business leaders that the company was healthy, still growing, and not going anywhere.

“After a comprehensive review, the (Rackspace) board decided to terminate M&A discussions,” the company announced in its Tuesday statement after markets closed. “Based on Rackspace’s reaccelerated revenue growth and its potential trajectory for the coming year, the board concluded the company is best positioned to maximize shareholder value by executing its strategy as the #1 managed cloud company.”

Graham Weston, Rackspace chairman. Photo by Iris Dimmick.

“We ran a thorough process under the direction of our board of directors, independent advisors, and a Strategic Transaction Committee of the Board,” said Graham Weston, Rackspace co-founder and chairman, in the company announcement. “In this process we talked to a diverse group of interested parties and entertained different proposals. None of these proposals were deemed to have as much value as the expected value of our standalone plan. We concluded that the company is best positioned to drive value for shareholders, customers and Rackers through the continued execution of its strategic plan to capitalize on the growing market opportunity for managed cloud services.

“The board also considered a share repurchase program and determined that, based on the company’s significant opportunities, it is prudent to maintain flexibility at this time to ensure that the appropriate investments can be made to drive our strategy forward. We will continue to evaluate the benefits of implementing a buyback program in the future,” continued Weston.

That statement seems to confirm the company is sticking with the strategy outlined by Rhodes last March in his interview with the Rivard Report: Grow share in the managed cloud market, emphasizing the company’s ability to deliver unrivaled levels of service, round-the-clock support, and specialized expertise not available from the big providers of unmanaged, commodity cloud infrastructure. That, and keeping an eye out for strategic acquisitions of smaller companies that have skills and technologies that can accelerate Rackspace’s managed cloud growth.

Weston praised the selection of Rhodes to lead the company at a time when competition has never been so strong, yet opportunity to grow greater than ever. More and more companies are finding traditional in-house IT management of their systems and databases to be inadequate, often leaving them with outdated technology and difficulty competing in the fast-growing e-commerce market. Convincing those companies to select managed and hybrid cloud services over low-end, do-it-yourself cloud providers is key to Rackspace’s continued growth and profitability.

“As a seven-year leader of Rackspace, Taylor brings significant experience, dedication and passion to the role of CEO. He was instrumental in the development and execution of Rackspace’s managed cloud strategy that is now delivering strong results,” said Weston. “We are confident that under his leadership, and through the execution of our strategy, Rackspace is well positioned to lead in the large and growing managed cloud category.”

Rhodes is a former U.S. Marine officer who came to Rackspace in 2007 from Dallas-based EDS, later acquired by Hewlett-Packard.

“Throughout our history, Rackspace has set the standard for managed services in our industry. We are famous for delivering Fanatical Support to over 200,000 customers globally,” said Rhodes in the company statement. “Our underlying strength, as evidenced by our strong second quarter results and the recent traction with customers and industry experts, gives us great confidence in the future. In fact, we remain on track to have a strong third quarter and second half of the year and are comfortable with the guidance ranges we have provided. We are more focused than ever on expanding our leadership of the managed cloud market, and we think the best way to do that is by remaining an independent company.”

Company executives hosted a conference call to discuss today’s news. The Rivard Report will post a link to that call as soon as it becomes available.

Rackspace ranks No. 29 on Fortune’s list of Top 100 Best Companies to Work For. About 3,600 Rackers are based in San Antonio at The Castle, Rackspace corporate headquarters, with 5,700 employees worldwide. The company’s stock (RAX) closed Tuesday at 39.34 a share, up a fraction on average trading, but was then down sharply in after-hours trading, following the announcement that it would not be acquired.

*Featured/top image:Rackers collaborate to provide Fanatical Support to their customers. Photo courtesy of Rackspace.

Full disclosure: Geekdom, founded by Graham Weston and others, is a major advertiser on the Rivard Report.

Joel, We read Randy Bear’s post and respect his viewpoint, but we’ve concluded that over time the market will differentiate between low-end cloud service providers and managed and hybrid cloud that is heavily supported. It’s good for readers to have a range of views. Time will tell. Thanks for reading and commenting. –RR

So let’s put aside my technology industry views or Bob’s local views and let’s listen to the industry, namely the cloud industry who tracks this stuff on an hourly basis and understands the nuances behind the industry. I think the issue is that Rackspace entrenched with Rhodes’ appointment in an area it may have a hard time maintaining differentiation in the long run. Remember, the gains were internal gains, not industry gains, at a time when the industry is seeing very strong growth.

My point has been that Rackspace may have missed years of innovation in the cloud environment creating a human resource intensive model that they themselves take pride in. I would have preferred they to have coupled that support model with a strong innovation push, giving them a solid foundation for growth. My experience has been you solidify your business through automation and innovation of the human side, leaving the even more complex tasks to humans. Then lather, rinse, and repeat.